Financial planning is difficult. That’s the easy way of putting it. It requires you to know how assets are appreciating and depreciating, what the value of those assets are, how they could be used to pay a debt or how they could be used as collateral, plan out reinvestment costs, and the list goes on and on.
It’s a tough part of the job, especially if you’re a solo entrepreneur and taking on the brunt of this side of the business for yourself. This nine-step plan is a system that you can use to plan your finances and make sure you aren’t missing anything. If you’re not sure of what you’re supposed to do from the second you hear anything about financial planning, let us give you some peace of mind.
1. Evaluate Your Current Circumstances
Let’s take a step back and find out where you are right now, so you can know how to proceed to the next part of your affiliate gym plan.
Starting with personal income, are you in a place where you can leave the business income alone for six months to one year, or do you need to use those profits to pay yourself?
Find out where you are with your personal finances, and then start to take a look at your business finances.
If you received VC funding or you’re using a business loan, write down a timeline of when you need to start making repayments. This will help you define your monthly success based on what you make above debt and operation costs.
Find ways to save on opening costs, and don’t just think about the short-term. If you buy equipment with available funding right now, which will save you money in the long-run as opposed to renting it, is that a cost you can absorb right now?
When you figure out what long-term solutions are unavailable due to short-term funding, it paints a better picture of where you are financially. If you’re in a good spot, you can make the decision to take long-term benefits that may cost more now, but cost you less over time.
Buying a building instead of renting one or buying gym equipment instead of renting it are both excellent ways to take down your operational costs over the course of your business’s life. If that’s doable, figure out if it would help you in your current circumstance or not.
Once you establish where you are with personal finances and chart out how much you have to spend on your business expenses, you’ll be ready to proceed.
2. Set Achievable Financial Goals for Your CrossFit Affiliate Gym
The key word here is achievable. Designate financial goals that you would like to see your affiliate gym hit, and how you would go about getting there.
Do you want to cross $100,000 in gross income in the first six months? $250,000 in the next six months after that? Are your goals percentage-based to help balance operational costs and the gross income line doesn’t really affect you?
There are far, far too many ways to divvy up financial goals. Everyone has a different metric they want to hit, and it will be completely different based on your location and the demographic that you serve. But you definitely do need a goal.
This isn’t something you should pick lightly or pluck out of thin air. Your financial goal should reflect the conditions of your gym, debt, available funding, operational costs, and be reasonable within the realm of the demographics you serve.
Far too many owners will pick a vanity number that doesn’t mean anything relative to their business—it’s just an attractive number, but those aren’t goals that you can reasonably hit. They’re pipe dreams.
Think about it this way: your business will tell you what you’ll be able to make. Let’s say you do everything right, you market well, you have low turnover, your staff is happy. Let’s say the conditions are perfect.
Those conditions will define how much you make based on your current available clientele, but every gym has an invisible number that they would plateau at. You can’t hit vanity metrics just because you want to: take a detailed, data-driven approach before you set this goal.
3. Create a Reasonable Budget for Your Business
Every business needs a budget. You need a set limit for each aspect of your business so you know where to draw the line.
Setting a reasonable budget means understanding what you want, and what you can afford. Those are two very different things, and people often get lost in the idea of buying things that truly don’t matter at the moment.
Budgeting means thinking about what you need, not what you want. You need to budget money for the light bill every month, but you do not need an internal decoration budget right off rip.
You should focus on equipment and functional devices, and get to anything that’s purely aesthetic later on. Budget smart so that you don’t spend more than you can reasonably pay back in the future. Never get stuck in the cycle of “I’ll be making more by then, so I can afford this now.”
Additionally, follow these smart business budgeting tips:
- Subtract Fixed Costs First: Budgeting doesn’t mean you can’t spend money on things that your business needs or could benefit from. There should always be some leeway for experimentation, it just shouldn’t cost you your entire budget.
- Create a Profit and Loss Statement: These statements may not be exciting, but it indicates how your business tracks revenue and expenses and later turns that revenue into net profit once you subtract fixed costs.
- Budget vs. Actuals: When you budget, you’re making very well-educated estimates on how much something is going to cost. The actual, as you might imagine, is what the actual cost ends up being. You should always budget a little bit more than needed to account for price increases, and because it’s always nice to have some extra business money kicking around later on. Better to be prepared.
4. Allocate Backup Funding (Rainy Day Fund)
Saying “have a backup fund” is like saying you should be prepared for something without knowing what it is. It’s not very helpful unless you get into specifics, so let’s break down how you can calculate your rainy day fund for your CrossFit affiliate gym.
- Calculate Your 12-Month Expenses: What will it cost to operate your gym for one full year? Keep labor costs in mind, rent, and everything down to the water cooler guy bringing in refills every Friday. Don’t miss a single thing, otherwise you’ll burn through your rainy day fund faster, reducing your total number of months or weeks that your rainy day fund is available for.
- Plan for Slow Seasons: While planning out that 12-month expense sheet, keep in mind that gyms go through slower seasons. While these times can be great for advancing your business and rolling out new products to be ready for the busy season, you need to account for less income. Your rainy day fund should have a little more padding during these months.
- Create a Hierarchy of Priority Expenses: If your expenses are more than you expect (because let’s be real: you can’t be 100% accurate in your predictions), what are you going to do? Which expenses need to be paid first so that the other ones don’t fall by the wayside? This is ridiculously important, otherwise you could fail to pay for necessary services that are vital to your business operation. Be honest with yourself and prioritize what matters most to keep your business running; everything else is second fiddle.
- Set Up Lifelines: What if your rainy day fund runs out and you still need more money? More time? Have some lifelines in place, whether it’s short-term loans with low interest rates, personal loans used for business, or what-have-you. Just make sure you aren’t dead in the water because you’re running a little late.
- Continuously Reevaluate Your Expenses: You need a 12-month contingency fund. You expect that month 8 will have a certain amount of expenses, but later on you find out that your vendor prices went up during month 4 and you didn’t account for it. What do you do? You constantly reevaluate your expenses every single month (it only really takes a quick 15-20 minutes per month) and find out where you are financially. Ideally, you’ll be able to recalibrate your rainy day fund so you know when it runs out. Better that than to be blindsided.
- Keep Adding to It: Beyond having 12 months of savings set aside, understand that vendor prices change, rent increases, and without proper planning, profits can go down. Keep adding to your savings every single month with your profits. If you can’t allocate a little bit of your monthly profits to your savings, that acts as a signal to tell you that your current profits aren’t enough and that you can’t sustain problems in the long run. It could be a wake-up call, or a chance to add to your savings. Either way it’s valuable.
5. Strategize Debt Allocation
Debt is allocated differently in a partnership than it is in a sole proprietorship. In a partnership, you each take a certain percentage of the debt according to the percentage of profits you take. If it’s 50/50, that’s pretty simple to figure out—you just divide it right down the middle.
If you have an arrangement where one of the partners is mostly silent (whether it’s just angel investor money or only being able to help out a couple of days a week), maybe they only take 30%. That means any new debt to the business would be 30% theirs. This is what you need to know about strategizing your debt allocation.
- Share Repayment: If it’s on the business account and you’re solely paying back from profits, that’s the best-case scenario. Otherwise you risk your partner not being able to pay back their share of the deal. Make sure there are terms set up ahead of time to force repayment from both of you (or however many people are part of the business).
- Decide on Profits: Will it come from profits and cut into your paychecks, or is there enough profit there that you don’t have to worry about the loan? Allocate the debt accordingly so it’s not crippling your business.
- Give Yourself More Time Than You Need: Can you pay the loan off in 24 months? Great—settle on a 36-month term loan instead. The probability of your CrossFit affiliate gym being perfect over the next two years is minimalistic at best. Lest we forget what the pandemic did to gyms all across the United States?
6. Organize Your Business Investments (Equipment, Rental Property, etc.)
To grow a business, you have to first invest and then reinvest at every opportunity. So now it’s time to figure out where the money’s going to end up.
- Equipment: You have the option to buy your equipment outright at a high price (and lower your monthly expenses), or you rent from a company and per machine on a monthly basis. There are pros and cons here, so weigh them accordingly. When you rent, you lower your monthly profits but you don’t have to replace broken machines—if you’re in a good agreement, they’ll replace it with a functioning machine ASAP. When it’s time to upgrade to a new “season” of exercise equipment, it’s built-in to the rental cost, but if you want to upgrade as an owner, you’ll have to auction your equipment, take the money, and combine it with profits to buy newer models.
- Rental Property: A property is an investment whether you rent or own. If you own, the mortgage gets paid off and you own it. That’s beautiful. If you rent, you’re still growing a business that you otherwise wouldn’t be able to. Unless you have an amazing standalone location that you can buy outright, you’ll likely be renting. Mortgage payments will be less on your monthly expenses, but come with a higher risk and more to lose.
- Staffing: How many of your staff will be freelancers and how many will be employees? You need a bookkeeper, but do you need a full-time bookkeeper? What about legal? These are freelancers you only need to have on retainer for a few hours a month, but your in-house staff, trainers, and management will be another story. Plan out how much you’re going to pay them, and what percentage of your overall operating costs labor will be.
7. Total Risk Assessment
Risk assessment is often undervalued. It provides a safeguard against all that you’ve built or will build, so it’s a step that you really, really don’t want to overlook. It’s like how you never appreciate the backup until your system crashes, or you never appreciate how great it is not being sick until you have the sniffles.
This is how you perform a total risk assessment for your CrossFit affiliate gym.
- Identify Your Hazards: These aren’t always in your control. Hazards could be natural disasters, pandemic-related issues, or even labor strikes, as well as your equipment being down. Keep in mind this also includes lesser-known hazards such as overworking your employees, supply chain interruptions, and chemical hazards with your gym’s cleaning equipment.
- Find Out Who Will be Harmed: If there’s a labor strike, it hurts both you and the workers. If there’s a chemical issue, it hurts your janitor or anyone with access to chemicals. In your risk assessment find out who stands to be hurt so you know what to do in the event that it happens.
- Reduce Risk: What can you do to reduce risks? You want as few viable risks as possible in your business. Consider getting proper chemical training for your janitors and helping them get certified. Make sure you pay your employees a fair wage (not minimum wage) so that they’re not keen to strike or walk off the job if there’s a rough day. Always have enough hands on deck so your employees aren’t overwhelmed. Plan for supply chain interruptions and being shut down due to another pandemic or natural disasters (basically, a rainy day fund).
- Make a Physical Plan: Your risk assessment should be in a physical format. Something that others who are trained can look at in your absence. If you don’t have an action plan that someone else could easily read and follow, you could run into unforeseen issues down the road that stem solely from not being prepared.
8. Review Your Plan and Refine it
Now that you have your financial plan mostly laid out with emergency funds, risk assessments, and budgeting in mind, it’s time to go through and trim down everything you’ve written down and learned.
- Base Data: Make sure you have the base amount of data necessary for your financial plan to work. In many cases, a simple instruction will do without detailed explanations. Supply your financial plan with hard numbers, real-time data with dates, and make sure everything is as lean as possible.
- Simplify: Go through each section and make sure it’s easy to understand. Use simple language without overcomplicating things. Remember, your financial plan doesn’t have to seem like it was written by an account with a 30-year history in the business. It just has to make sense to you and your partner(s).
- Small Explanation: You’ll feel a need to write out long-winded paragraphs about every single section in an effort to explain it, but if you put your data down correctly, you won’t have to do that. Write as if you have a maximum amount of words you’re allowed to use; don’t make it stretch on forever.
9. Word Your Financial Plan in a Clear, Concise Way
Before you close the cover of your financial planner, it’s important to make sure it’s readable and easy to understand by anyone who may one day be in your position. While CrossFit only wants you to have one affiliate gym, who’s to say that you don’t open another gym in another city as part of your business? You may have a manager one day who needs access to financial data to make decisions, so make it accessible to them.
- The Power of 3: Group information together in batches of 3. When you list 3 times, it’s easy to follow and remember for most people. Don’t just cluster everything together in your financial plan—mark it down with purpose.
- White Space: You need white space between big chunks of data or information. Nobody wants to read walls of text (that’s what novels are for). This makes it easier to read, easier to follow, and reduces the probability of missing something.
- Make it Make Sense: Organize and structure the information in a way that naturally flows from one step to another. This financial plan of yours is an asset that you can use to help you secure loans, bring on investors, and be seen as a serious force and entity in the business world. It’s an asset that you don’t have to update too often—it’s worth your time to upgrade it. Pretend that it’s going to a board of investors tomorrow, and they only care about what’s on the pages.
Your CrossFit Affiliate Gym Success is Just Around the Corner
Financial planning is critical for success, and now you’re well on your way to having a highly successful gym. It’s not easy, and it may require some outside help such as freelance accounts and writers, but it can be done. The task isn’t as daunting as you think it is.
Your financial plan is like the DNA of your business. Without it, the business can’t function or grow properly. Treat this step as crucially as you treat every other aspect of opening your CrossFit affiliate gym, and you’ll go far.